Declining consumer confidence and a sluggish job market contributed to what researchers describe as a “subdued” housing market in 2025, a trend that continues in 2026, according to a presentation by Daniel McCue, senior research associate at the Harvard University Joint Center for Housing Studies (JCHS) about their most recent State of the Nation’s Housing 2026 report. The report covers both rental housing and homeownership markets, which are impacted in different ways by economic trends.
Multifamily markets are particularly affected by household formations since new households often start as renters before considering a home purchase. The JCHS report shows that household growth slowed for the third consecutive year in 2025, falling from an average of 2.0 million households in 2021 to just 1.1 million in 2025. McCue said that the slowdown in household formations by young adults is driven by several factors, including the lack of affordable housing, heavy student debt, and a feeling of uncertainty about their financial future and about the economy in general.
During a panel discussion about the JCHS report held June 17, Chris Herbert, managing director of JCHS, commented that while the slowdown in household formations is notable, 1.1 million new households is still robust.
“Slowing demand for new housing is likely to continue not only because people are less willing to form new households in times of uncertainty, but also because of the slowing birth rate,” Herbert said. “The slowdown in immigration to this country is also impacting demand for housing.”
However, Sharon Wilson Géno, president of the National Multifamily Housing Council (NMHC), pointed out that a record 2.5 million people between 25 and 35, approximately one-third of that age range, lives at home with their parents.
“That’s a lot of pent-up demand for apartments in future years,” she said.
McCue also pointed out the slowing job market, which dropped sharply from a gain of 1.5 million in 2024 to an increase of just 116,000 new jobs in 2025. Closely related to the employment picture as well as stubborn inflation, consumer confidence dropped by over 20 percentage points throughout 2025, and even further following the start of the conflict in Iran to an all-time low in April 2026, according to the report. Harvard’s researchers found that consumer confidence declined to lower levels in 2026 than during the 2008 Great Recession or the pandemic.
“New graduates are less likely to form a new household or move to a new region if they lack confidence in the economy, especially if they can’t find a job,” McCue said.
The report found that apartment demand slowed, with the year-over-year increase in the number of renters in the first quarter of 2026 less than half what it was during the first quarter of 2025.
Supply Side Dynamics
Multifamily vacancy rates increased from a record low of 5.9% in 2022 to 7.3% in the first quarter of 2026, which is still below long term averages. McCue pointed out that there were one million more rental units vacant in 2025 than in 2022, but that there are wide differences between markets. For example, Austin’s multifamily vacancy rate was 5% in 2025, while Chicago’s was just 0.5%.
The rise in vacancy rates is primarily due to the series of historic levels of multifamily deliveries in 2023 and 2024, Geno said.
“We look at absorption rates, too, and they’re still consistent,” she said. “So, the market is adapting to changing supply and demand dynamics.”
Multifamily construction slowed significantly in 2022 and 2023 when interest rates were higher, Geno said, and markets are just beginning to see the impact of that since it takes two to three years to build apartments.
Affordability Challenges
An issue in the multifamily housing sector is the disconnect between what’s being built – primarily Class A buildings – and demand, which is highest for affordable housing, Geno said.
The JCHS report pointed out that as of 2024, 11.0 million extremely low-income renter households were competing for just 3.8 million affordable and available units. According to the report, 22.7 million renter households (49%) spent more than 30% of their income on housing, including 12.1 million (26%) who spent more than 50% of their income on housing.
“The demand for affordable housing hasn’t slowed at all, and the supply is still limited,” said Marietta Rodriguez, president and CEO of NeighborWorks America.
Rodriguez said that more collaboration is needed between nonprofit developers, state housing finance agencies and communities to encourage new investments in affordable housing.
“Local governments typically control land use, and the federal government has a regulatory role, but states can address financing issues,” said Stockton Williams, executive director of the National Council of State Housing Agencies. “States are taking on a new role and focusing on how to make it easier to produce new housing and preserve existing affordable housing.”
Geno suggested that policymakers should invest the most energy on affordable housing for very low income households.
“The number of cost-burdened renters is skewed by income levels,” she pointed out. “Renters at higher income levels pay 20% or less of their income on average for housing, and people with middle level incomes pay 24% or less in rent.”